If your business is showing a healthy profit, but your bank account doesn’t reflect it, you’re not alone.

Many small business owners feel like they’re doing everything right—generating revenue, keeping expenses in check, and even showing strong net income on their P&L. But when it comes time to pay bills, cover payroll, or make investments, there’s never quite enough in the bank. So where’s all the money going?

In this article, Andrew Farrell breaks down one of the most common (and confusing) disconnects he sees in small business financials: the difference between profit and cash flow.

Through a real story about a business owner who felt like they were drowning—despite being technically “profitable”—he’ll show you why your P&L isn’t the full picture, and how looking at your balance sheet and cash flow statement can help you see what’s really going on.

Let’s dig in.

Not long ago, I was introduced to a husband-and-wife team running a successful sign installation company — let’s call them Mark and Dana of Northline Signs. 

The message was clear: 

“They’re in distress. They’re thinking they may have to shut it all down.” 

I assumed I’d open up the financials and see what you’d expect. Falling revenue, rising expenses, signs of a business in trouble. 

But what I received were a few years’ worth of P&Ls (profit and loss statements), and at first glance, things looked… pretty solid. Revenue had dipped slightly since the COVID years, but their net income still showed $175,000 per year. That’s a strong number for a small business. 

But clearly, I didn’t yet have the full picture. 

Mark and Dana told me they’d been pouring money back into the business for years — dipping into savings and even using their home equity line of credit just to stay afloat. They felt like they were spinning their wheels. Tired. Confused. And deeply frustrated. 

It wasn’t until I was provided the balance sheet and cash flow statement that things started to make more sense… 

This is where the difference between profit and cash flow really matters. 

Your P&L shows how much money the operations of your business is making. This is an important distinction.  It includes revenue minus operating expenses, including payroll, rent, cost of goods, etc. But it doesn’t tell the whole story. 

There are cash outflows from your bank account that are not captured as operating expenses. These might include: 

Loan payments. 
Owner draws or distributions. 
Equipment purchases. 
Credit card principal repayments. 

All of those cash outflows, which are critical to keeping the business running, live on the balance sheet and flow through the cash flow statement, which most small business owners rarely see, if at all. 

So when I built a simple cash flow statement and reviewed their balance sheet, everything started to click. 

The operations of the business were profitable — but those profits were being wiped out before Mark and Dana ever saw a dime. Monthly debt payments from loans and new equipment investments were swallowing nearly all of their earnings. What looked like $175K in annual profit turned into having to put $90,000 back into the business. 

The Ah-Ha Moment 

When I showed Mark and Dana the full picture, it was like the fog lifted. They weren’t crazy. They weren’t bad business owners. They were just looking at an incomplete story. 

What they thought was money in the bank when they looked at their P&L was just the halfway point to understanding the true impact to their cash. 

And I see this all the time. Business owners who feel stuck or ashamed or just plain confused because the P&L says one thing, but the bank account tells another. 

The Bottom Line 

Profit doesn’t pay your bills, cash does. 

And while your P&L is a critical tool, it’s only one piece of the puzzle. If you’re not looking at your cash flow and how your balance sheet decisions impact it (think new loans, owners draw, etc.), it’s easy to feel like something’s wrong, even when you’re technically “profitable.” 

If any of this sounds familiar, you’re not alone. And you’re not failing, but you might need a clearer picture. 

I’m here to help 

I started my fractional CFO firm, Farrell Financial, to help business owners connect the dots between their financial reports and the real-life decisions they’re trying to make. And understanding cash flow is critical to making good decisions.  

If you need help understanding your cash flow, I have a completely free cash flow tracking and forecasting tool that will help start painting a clearer picture of what’s going on in your business. 

Please feel free to reach out and I’ll send it your way 

P.S. Mark and Dana will be fine 😊 We’ve got a financial plan in place to reduce debt and expenses and they are well on their way!